Sing dollar set to stay flat for rest of the year

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MAS may tighten monetary policy next year

The Singapore dollar is likely to stay flat against the greenback for the last three weeks of this year, economists said, but all bets could be on next year.

The game changer may be the Monetary Authority of Singapore (MAS), which is expected to switch tack on the exchange rate and tighten policy.

The "neutral" stance of zero appreciation, put in place last year, may run its course in the months ahead.

A policy shift, if not set at the MAS meeting in April, could come in October, said Ms Selena Ling, OCBC Bank's head of treasury research and strategy.

"For monetary policy, MAS would want to be pre-emptive, so it depends on their inflation picture 1½to two years down the road."

Ms Ling told an outlook briefing last week: "If MAS expects inflation to be picking up 18 months from now, they will probably have to move monetary policy now."

Mr Joseph Incalcaterra, Asean chief economist at HSBC, added: "The economy in Singapore might actually look more resilient next year, even if headline growth decelerates, because this year has been driven by a lot of external factors."

While electronics manufacturing has spurred exports this year, he predicts 2018 will bring internal tailwinds, like rising consumption from improved employment.

He added: "In most Asean economies, we're looking for a lot more certainty in the external environment, particularly Fed policy and China's growth pace in 2018."

If MAS expects inflation to be picking up 18 months from now, they will probably have to move monetary policy now. OCBC Bank’s head of treasury research and strategy, Ms Selena Ling

In Malaysia, the ringgit's rally is expected to continue, sustained by rising oil prices and a stronger economy, said Mr Khoon Goh of ANZ.

Bank Negara has been tipped to raise interest rates early next year, which Mr Incalcaterra said would put Malaysia and Singapore at the head of the pack as regional regulators mull over strengthening their currencies.

Still, respite seems a little way off for the Singdollar's rebound.

Market watchers expect two issues to boost the greenback: corporate tax reform and the United States Federal Reserve's interest rate hike.

Mr Dominic Schnider of UBS Wealth Management noted: "The Fed rate hike in December is largely expected, so it will likely be a non-event. Hence, the focus is shifting towards the language of the Federal Open Market Committee meeting next week. A dovish hike would bode well for the Singapore dollar, while an indication towards multiple hikes next year could give the greenback more support."

In the last six years, the Singdollar has weakened against the greenback in December, ANZ's Mr Goh noted. It is on track to do the same this month.

But he added: "Any decline will likely be modest, given the strengthening Singapore economy."